American Bar AssociationGeneral Practice, Solo, and Small Firm Division The Compleat LawyerFall 1997 copyright American Bar Association. All rights reserved.

The Business of Law /Edward Poll

Edward Poll is a law practice management consultant. He is the author of Attorney & Law Firm Guide to The Business of Law: Planning & Operating for Survival & Growth (ABA General Practice Section, 1994) and the creator of Law Practice Management Review: The Audio Magazine for Busy Attorneys. If you have comments about this column, call 800/837-5880, fax 310/578-1769, or send e-mail to EdPoll@LawBiz.com.

The Open Book RevolutionA new approach to management is making the rounds of small businesses and law firms across the country: Open book management. An "open book" process requires every lawyer and staff person to learn about and understand the firm's financial status and other pertinent information necessary to track the firm's performance.

Lawyers and staff members need to understand that their jobs require their participation in helping the firm, and that everyone has a direct stake in the firm's success. Open book management, when successfully implemented, teaches people to think as businesspeople, not as hired hands. The impact of this switch in thinking is enormous. Even the Harvard Business Review, the conservative bastion of business thinking, is talking about open book management.

Traditionally, law firms have been reluctant to disclose information to anyone. There has always been an element of fear that if associates know too much, they might steal clients and open up their own firms; or that the staff might "sell the firm out" by leaking confidential information to a competitive law firm.

This fear is usually unfounded. In most cases, the associates and staff generally know how a firm is performing even though they may not know the exact financial information. They know whether the firm is successful or struggling to meet its obligations; whether the industry considers the firm to be a leader in its field or a "me-too" operation; and whether there is pride and joy in working at the firm's operations.

In reality, the reluctance on the part of law firm management to open the firm's information banks has created a lack of trust on the part of its employees, and that lack of trust goes full circle so that neither staff nor management trusts the other.

A classic negotiating principle taught to business students is to get the other side to sit shoulder-to-shoulder with them, so that both are on the same side of the table, rather than to be face-to-face in a confrontational style. In running a law firm like a business, if management can get the associates and staff to look at the firm in the same light as the firm's management, the trust factor will be recreated, and the firm's chances of success will be improved.

The Reality of Opening the BooksCan the principles of open book management really work in a law firm? In fact, very few firms, even the large firms, currently open their books to their partners, let alone their associates or staff. While partners have the legal right to inspect the firm's books, if the management committee chooses not to reveal the information, partners will not normally ask for the information. Associates almost never see the information. This is a situation in need of change.

Most lawyers prefer to "practice law." This means that lawyers want to do the research, prepare for and conduct the trial, conduct the negotiations, and perform other elements of the practice. Lawyers are typically not enthusiastic about marketing their services or handling any of the other business activities needed to run a law practice. Why should lawyers be concerned about the financial side of the practice? Why should lawyers care about the open book management theory?

The answer is simple: If more lawyers conducted themselves not just as lawyers but as businesspeople or as owners of the practice, then law firms would surely experience the same type of success as businesses in other industries.

Recent focus groups conducted by the State Bar of California and other organizations have highlighted clients' opinions that lawyers are arrogant, fail to understand the simplest of business principles in the operation of their own law practices, and do not practice the simplest of courtesies required by any successful business an awareness and appreciation of the consumer's (i.e., client's) concerns and needs. All of these shortcomings are examples of lawyers who are not acting as businesspeople. Opening the firm's management is one good way to turn things around.

How to Open the FirmHere are some practical suggestions for opening the management of the firm:

1. Prepare monthly financial information, especially summaries of revenues collected and expenses paid. Share these summaries with all the staff, including those in secretarial positions. If the staff feels as though they are an important part of the firm and valued for their contributions, they may refer their friends and acquaintances to the firm as potential clients or future staff members.

2. Explain financial information to everyone in the firm. Some people do not know how to read and understand financial documents. With the power of today's word processing and spreadsheet computer applications, charts can be created to help explain the information.

3. Once people understand the firm's financial information, ask for suggestions either to increase revenue or to decrease costs. Make the associates and staff part of the team.

4. Discuss goals for associates and each staff member on a monthly basis; at the end of the month, analyze their performances. Goals should be reasonable and specific, written in terms of numbers such as hours worked or dollars collected.

5. Create a reward system that recognizes attainment of goals for both associates and staff. Make sure any rewards are at or near the time of performance.

6. Create an overall year-end goal for the firm and set up a bonus/reward for the firm's achieving the goal. This will help individuals look beyond themselves to the larger good of the firm.

Long-lasting improvement can come only from the commitment of everyone in the firm. While no one approach can be a panacea for all ills, opening the management of the firm will go a long way toward unifying the law firm, encourage more of the firm's personnel to "pull in the same direction," and allow the firm to reach greater heights of success and prosperity.